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 Quarterly Journal of International Agriculture 50 (2011), No. 1: 55-64

Lessons from Structural Adjustment Programmes

and their Effects in Africa

Franz Heidhues
University Hohenheim, Stuttgart, Germany, and

Gideon Obare
Egerton University, Egerton, Kenya

Abstract
After independence around 1960, African countries started with high hopes for rapid
growth and development. Whereas the initial performance was remarkable, economic
development slowed in the 1970s and stagnated in the 1980s. In response, the states’
attempts to reinvigorate economic growth through state-led investments and import
substitution industrialisation strategies were unsuccessful. The World Bank, the Inter-
national Monetary Fund and Western donors developed and advocated Structural
Adjustment Programmes (SAPs), which emphasised macroeconomic stabilisation, pri-
vatisation and free market development. The SAP approach has generated consider-
able debate within African countries and development circles. While proponents
argued that the reforms were essential and without alternatives, critics charged that
SAPs paid insufficient attention to the social dimension of development and to the
institutional weaknesses of developing countries. The debate continues. This paper
discusses the pro and contra arguments of the debate, presents lessons learned, and
draws conclusions for future policy priorities.

Keywords: Africa, economic development, agricultural policies

JEL: D72, E61, N17, O13

1 Historical Perspectives: 1960-1980

Most African countries became independent in the early1960s. At independence, these
countries had high hopes for rapid growth and development. New energies were
released and African leaders’ minds were focused on catching up with the developed
world. “Africans must run while the others walk” captures the spirit of those early
years. The donor community shared this optimism and provided substantial support.

African leaders, influenced by the prominent Prebish-Singer hypothesis of an enduring

long-term decline of international terms-of-trade in disfavour of primary products,

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56 Franz Heidhues and Gideon Obare

notably food, adopted strategies that focused on industrialisation as the engine of

economic growth. The prospects for primary commodity exports were seen to be poor
and the desire to reduce dependence on manufactured imports was widespread. To
reduce the countries’ dependency on manufactured imports, state-driven development
through Import-Substitution Industrialisation (ISI) was promoted. Agriculture was
ascribed a secondary role of supplying raw materials and providing tax revenues to
finance developments in other sectors (ACEMOGLU et al., 2001).

Furthermore, the African leadership believed that the private sector was too backward
and that government had to play the dominant role. This belief translated into the
socialist approach to development in which all aspects of economic development were
primarily government-driven. Guided by this approach and with donor support,
governments drew up comprehensive five-year plans, invested in large state-run basic
industries, and enacted comprehensive regulations to control prices, restrict trade, and
allocate credit and foreign exchange (OWUSU, 2003).

Initially, much was achieved with this approach: the number of trained people in-
creased substantially, major investments were made in infrastructure (roads, ports,
telecommunications, and power generation), and health and education improved
significantly. Annual economic growth in Sub-Saharan Africa averaged 3.4% between
1961 and 1980 while agriculture grew by about 3% per year over the same period.
However, in the early 1970s the growth engine in African countries began to slow
down and by the mid-1970s, economic performance was lagging behind that of other
parts of the developing world. This performance was reflected in poor growth of the
productive sectors, a declining level and efficiency of investment, waning exports,
mounting debt, deteriorating social conditions, and an increasing erosion of institu-
tional capacity. These developments led to high budget and balance of payments
deficits and significant public debt (HEIDHUES et al., 2004). By 1980, output was
actually declining. By the end of the 1980s, Sub-Saharan African countries were facing
fundamental problems: high rates of population growth, low levels of investment and
saving, inefficient use of resources, weak institutions and human capacity, and a
general decline in income and living standards.

In reacting to the crisis, African leaders and the major international financial institu-
tions recommended different remedies to reverse the negative trends of the late 1970s.
The first set of policies became known as the Lagos Plan of Action (LPA) and the
Regional Food Plan for Africa (AFPLAN). The LPA and AFPLAN can be traced back
to the Bandung Conference of 1955, whose aim was to build a bourgeois national state
within the Third World with a capacity to make progress in solving the problems of
underdevelopment. The LPA emphasised continuation of state driven development
through ISI. This process enabled leaders to continue maintaining inefficient domestic

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 Lessons from Structural Adjustment Programmes and their Effects in Africa 57

industries and a bloated public sector. Those countries that tried to pursue the LPA and
AFPLAN strategies ran into numerous difficulties in implementing these plans. This
was primarily due to institutional weaknesses of African states, as well as the rejection
by the World Bank (WB), the International Monetary Fund (IMF) and western donors
of any calls for an adjustment of the international economic order, outside of the
capitalist system, to meet the development needs of developing countries. The donor
community received the mentioned plans reluctantly, or gave half-hearted support at
best.

Arising from the relative failures of the LPA and AFPLAN, and the denial of donor
support, a second set of policies was initiated. These policies were based on the neo-
liberal understanding of economic development that was held by donors and inter-
national institutions at the time and which found expression in the WORLD BANK’s
Berg Report (1981) Towards Accelerated Development in Sub-Saharan Africa. The
report argued that the failure of African economies to take a satisfactory development
trajectory was attributable to their governments and the policies that they were
pursuing. In particular, gross resource mismanagement, faulty exchange rate policies,
excessive state intervention and, especially, the protection of inefficient producers, the
unnecessary subsidisation of urban consumers, extraction of high rents from rural
producers and general corruption were cited as the major causes of stalled develop-
ment. The central recommendation of the report was for governments to refrain from
intervention in their economies and to liberate market forces by freeing foreign trade
and currency exchange from controls. Steps of this kind were made a precondition for
structural adjustment loans and sectoral adjustment loans, commonly referred to as
Structural Adjustment Programmes (SAPs); they had far reaching effects on develop-
ments in Africa and will be the focus of this paper.

2 Structural Adjustment Programmes (1980-1999)

SAPs and their associated stabilisation policies are among the most important policy
frameworks of the last century that have greatly influenced both strategies and
programmes for agriculture, food and nutrition security in Africa and therefore overall
economic development. As already mentioned, the SAP approach was the response of
the WB and the IMF to the African economic crisis of the 1970s. The SAPs were
introduced across Africa in the 1980s and continued to operate throughout the 1990s.
During this period, the WB and the IMF closely worked together, with the IMF
heavily involved in setting the macroeconomic development and policy agenda, while
the WB provided structural adjustment lending.

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58 Franz Heidhues and Gideon Obare

SAPs were conceptualised to address the perceived key problems of African countries’
economic development. These included weak management of the public sector that
resulted in loss generating public enterprises and in poor investment choices (Africa’s
investment and operating costs were typically 50 to 100% above those in Southern
Asia), and in costly and unreliable infrastructure. Price distortions, especially through
overvalued exchange rates, price controls and subsidised credits, resulted in inefficient
resource allocation (WORLD BANK, 1981). Furthermore, wage costs were high, relative
to productivity (particularly in the former French colonies which had pegged their
common currency, the Communauté Financière Africaine (CFA) franc, to the French
franc), even though real wages fell by a 25% on average across Africa in the 1980s.
All of these factors added heavily to the cost of doing business, and discouraged local
and foreign investors.

The main elements of the SAPs were their classical/neoliberal features. They emphasised
anti-inflationary macroeconomic stabilisation policies and pushed for private sector
and free market development, controlling budget deficits, privatising public sector
companies and services, dissolving parastatals, eliminating subsidies and cutting
public support for social services. A typical SAP called for devaluation and trade
liberalisation to improve the country’s balance of payments and control its foreign
indebtedness; debt rescheduling and stricter debt management were regularly part of
the prescribed policy set (HEIDHUES et al., 2004).

Given this background, the SAPs and the neo-liberal policies, often called the
“Washington Consensus”, have continuously generated considerable debate within
African countries and development circles. Supporters argued that the reforms were
essential and that they should be implemented sooner rather than later. Critics charged
that the Washington Consensus paid insufficient attention to the social aspects of
development and the institutional weaknesses of developing countries.

One argument in the debate centred on the conceptual backing of the SAPs and their
neo-liberal background. For instance, in its 1989 report on Sub-Saharan Africa: From
Crisis to Sustainable Growth, the WORLD BANK (1989) acknowledged the need for
human-centered development as advocated by UNECA (1989), but nevertheless
emphasised its commitment to structural adjustment and export-led development (see
also PARFITT, 1993). This was further accentuated in its calls for a market friendly
approach to development (WORLD BANK, 1991). MKANDAWIRE and SOLUDO (1999)
have countered this approach with a systemic critique of structural adjustment by
arguing for the necessity for African countries to compete in the global economy, not
only on the basis of comparative advantages, but also through a modified version of
import substitution. They make the case that under this arrangement, African govern-
ments would have better been able to nurture high value-added, labour-intensive

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 Lessons from Structural Adjustment Programmes and their Effects in Africa 59

industries producing manufactured exports for the world market. Furthermore, the
authors also blame the adjustment policies to have failed to take into account the
political implications of reform and the risks that these policies posed for the stability
of developing countries. From this perspective the Washington Consensus develop-
ment was seen as an apolitical, overly economic approach, characterised by excessive
conditionality as well as the absence of genuine ownership by the countries concerned
(see also Hoeffler in this issue).

The impact of SAPs on Africa also remains a matter of intense debate. Early on, the
WORLD BANK (1994) claimed that “adjustment is working” in countries that followed
its prescriptions, both in agriculture and industry. Many empirical studies have
concluded that with some exceptions (Ghana and Uganda), SAPs have typically had a
negligible effect on growth in Africa (MOSLEY et al., 1995; EASTERLY, 2000, and the
literature cited therein; KLASEN, 2003). Some studies (such as WORLD BANK, 2000;
CHRISTIAENSEN et al., 2001) have argued that SAPs induced growth and reduced
poverty in those African countries where they were successfully implemented.
However, as KLASEN (2003) has pointed out, these results have not clearly been linked
to SAP-related macroeconomic policies.

The SAPs implemented in African countries were expected to ultimately reduce

poverty by fostering economic growth and by shifting relative prices in favour of
agriculture and rural areas where most of the poor live (WORLD BANK, 1981). To the
extent that SAPs failed to promote growth, no improvement in poverty can be
expected from growth effects. The impact on poverty and food security arising from
the shifting of relative agricultural prices has been mixed. The winners have been net
surplus producers of agricultural products among rural households, particularly those
with export crops, while the losers have been net consuming poor households and the
urban poor (CHRISTIAENSEN et al., 2001).

Of particular concern for poverty and food security are the fiscal measures imple-
mented as part of the SAPs. While there is wide consensus that low budget deficits are
essential for achieving macroeconomic stability, there is intense debate regarding how
to achieve them, that is, on the proper mix between tax increases and expenditure
reduction. In many SAPs, particularly the early ones, the expenditure side of the
budget had to bear the main burden. There was little room for raising tax revenues, for
example through import duties, without coming into conflict with the trade liberalisa-
tion objective. Because of this emphasis on expenditure cuts, public support for infra-
structure, education, social services, as well as for research and extension, suffered and
rural areas, with their high proportion of poor people, were particularly hard hit
(HEIDHUES et al., 2004).

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60 Franz Heidhues and Gideon Obare

The issue of whether the overall disappointing performance of SAPs in Africa is due to
incomplete and half-hearted implementation, inappropriate policy components of the
SAPs, or adverse external factors lies at the heart of the debate. A review of the
available studies suggests that in most cases a combination of these three factors is at
work. It is certainly true that there was incomplete, half-hearted, and “stop-and-go”
implementation (WORLD BANK, 2001), that there were deficiencies in the sequencing
of measures, lack of coordination of policies and inappropriate policy design (CORNIA
and HELLEINER, 1995; WORLD BANK, 2000), and that the markets for primary pro-
ducts deteriorated in the 1980s and 1990s (MKANDAWIRE and SOLUDO, 1999).

Therefore, it seems that, although SAPs and stabilisation policies were widely adopted
in Africa, their impact on both economic development and food and nutrition security
is debatable. The implementation of the policies was poor - only stop-and-go and half-
hearted in most countries - and there has been a lack of ownership and political will to
implement these policies, despite the financial support and conditions connected to
that support by their promoters, mainly the WB and the IMF.

3 Lessons learned
Largely in response to criticism from African countries, the Organisation of African
Unity, the Economic Commission for Africa, many Non-Governmental Organisations
and scholars, SAPs started to integrate the lessons learned and shifted towards a
more flexible and gradual approach to budget cuts, with greater tolerance to short-
term deficits during stabilisation (KLASEN, 2003; ADAM et al., 2001; CORNIA and
HELLEINER, 1994). At the same time, there has been increasing recognition of the role
governments should play in providing the necessary support for education, health care,
research and extension, most notably in agriculture, rural credit and institutional
development. It has also been realised that scarce public funds need to be focused
more on the needs of the poor so as to increase their access to these vital services
(ADAM et al., 2001). Thus, as the 1990s approached, there were increasing calls for
“adjustment with a human face”, which implied paying more attention to the social
dimension of development and the role of the state in this process.

This broader view of development was reinforced by a series of UN conferences

throughout the 1990s that dealt with such issues as gender equality, human rights,
population, social development and the environment. An initiative of the International
Food Policy Research Institute (IFPRI) in the early 2000s called “A 2020 Vision for
Food, Agriculture, and the Environment” was instrumental in focusing research and
development policy attention on a broad approach to the three critical issues of
securing future world food needs, reducing hunger and poverty, and protecting the

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 Lessons from Structural Adjustment Programmes and their Effects in Africa 61

environment. It aimed at developing a shared vision and a consensus for taking action.
The summary of an international consultation process identifies five priority areas for
action: i) focus on inclusive growth; ii) improve access to assets and markets; iii)
phase in social protection; iv) accelerate investments in health and nutrition pro-
grammes; and v) include the excluded (VON BRAUN and PANDYA-LORCH, 2007). It
also emphasises the need for countries to take charge of their own future, to overcome
conflict and instability, to improve governance, accountability and the reliability and
fairness of their legal systems, to create broad-based support for action through
participatory processes, and to improve institutional capacity to implement pro-
grammes. While the consensus for taking broad action is shared worldwide, it is
particularly relevant for Africa.

The failure of SAPs, as originally designed, to effectively address the development

challenges in Africa have effectively resulted in rethinking the approach. Yet, it has
not been completely abandoned; it has been repackaged in a form and manner to make
it attractive to stakeholders in development in appealing to the inclusiveness, owner-
ship, accounting for country resource heterogeneity, and more importantly addressing
the most current issues, such as the Millennium Development Goals (MDGs). It is in
this context that the Poverty Reduction Strategy Papers (PRSP) can be seen as the
repackaged form of an SAP, with modifications in social content and emphasis on the
issues of national ownership and consultation. Nevertheless, ADEJUMOBI (2006) has
argued that the content of PRSP, its ideological underpinnings, and the global context
in which it is situated seem to involve contradictory impulses for national ownership,
governance and poverty reduction in Africa. This argument, in a way, questions
the adequacy of PRSPs as instruments for development in Africa (see also ZACK-
WILLIAMS and MOHAN, 2005).

4 Conclusions
The neoliberal approach, on which SAPs were purely founded, while theoretically
sound, was fraught with pitfalls and failures to effectively address challenges to
economic development in Africa. It is most doubtful that a development strategy
which is purely designed along this approach can be effective in addressing the
poverty and under-development prevalent in the region. Markets and the private sector
have to develop to a level where they not only meet the necessary, but also sufficient
conditions for development in Africa.

Institutions play a key role in directing and fostering development. For example STEIN
(1994) argues that SAPs, as promoted by the WB and the IMF as a result of their
neoclassical roots, were basically a-institutional and therefore ill-equipped to promote

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62 Franz Heidhues and Gideon Obare

market and institutional development in Africa. The assumptions of ‘state abstinence’

underlying the models based on neoliberalism were generally not fulfilled in the
African context. Furthermore, while SAPs continued to emphasise the benefits of
unimpeded markets for all societies, they also demonstrated a lack of understanding of
how particular markets work and how culture and habits of thought shape ‘African
markets’ to operate differently from ‘Western markets’. The then President of the WB
admitted that the WB had ignored the basic institutional infrastructure, without which
a market economy simply cannot function – thus, “the World Bank has been consistently
surprised by cases in which people do not respond to incentives in the predicted
manner, when an understanding of local institutions would reveal these responses to be
quite consistent with local culture and habits.” (WOLFENSOHN, 1998: x).

A model of institutional development, when understood in the broader context of

property rights, rules and financial institutions; prices and markets; firms and industrial
organisations; and market organisation and functions, requires that states need to be
encouraged to play a vital role in their support and development. Yet one of the critical
preconditions for this model to work effectively is for ’good governance‘ mechanisms
to be built-in in state functions and operations from the outset, recognising that the
state is a critical player in a country’s economic development endeavours. Whereas
corruption, rent seeking and inefficiencies tended to thrive in privatisation processes
(see CALLAGHY, 1986, and KLITGAARD, 1990, for some examples of how government
officials are able to co-opt aid programmes for their own purposes), the focus now
should be more on reform and transformation rather than the wholesale abandonment
of the concept of intervention, which was embedded in the SAP approach (see also
Hoeffler in this issue for more details). The debate over the direction of policy in
Africa needs to be based on understanding the institutions, and their needs and
potentials for development.

It is apparent that for SAPs and their derivatives to be effective in leveraging

development in Africa, the respective states would need to build up and strengthen
capacities and institutions (broadly defined) to promote reform. More crucially, the
issue in the political economy for successful adjustment should not be to reduce the
role of the state in the naive hope that markets will develop to take its place, but to
restructure its activities so that it becomes a facilitator of, rather than an obstacle to,
development (BROMLEY, 1995). For example, where inadequate competition exists,
governments will have to intervene in the market; where food insecurity exists, they
will have to do more than simply "get prices right" to get farmers to increase output.
All of this geared towards productive independence. East Asian countries have
employed a combination of guarantees, credit flows, subsidies, ownership and
discipline to encourage movement up the technological ladder. However, liberalisation
there only occurred after firms were already competitive (CARMODY, 1998).

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 Lessons from Structural Adjustment Programmes and their Effects in Africa 63

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Contact author:
Franz Heidhues
Universität Hohenheim, Institut 490a, 70593 Stuttgart, Germany
e-mail: heidhues@uni-hohenheim.de

Quarterly Journal of International Agriculture 50 (2011), No. 1; DLG-Verlag Frankfurt/M.